The Institute of Chartered Secretaries and Administrators (ICSA) has published guidance on the proper purpose test that has been implemented under the Companies Act 2006 (“the Act”).
Sections 116 -119 of the Act mean that in order for a person (whether a member or not) to be able to inspect the register of members or obtain a copy thereof, such person now needs to satisfy the purpose test. ICSA has provided guidance as to what is meant by a ‘proper purpose’, as the term is not defined in the Act. Essentially, what constitutes a proper purpose in any particular case will be determined by the courts taking into account the facts and circumstances of each case.
Companies Act and the Proper Purpose Test
Under Section 116 of the Act, a member has the right to inspect the register without charge. A non-member may also obtain a copy of the register or part of it, upon payment of a prescribed fee. A formal request must be made to the company. Section 116(4) sets out the information that must be provided when submitting a request to the company including the requirement to state the purpose for which the information is to be used.
Under Section 117 of the Act, a company must within five working days, either comply with the request or refer the matter to court. If the court decides that the information is not being obtained for a proper purpose, it will instruct the company not to comply with the request. A company must not ignore or decline the request without an order of the court. To do so is an offence under Section 118, and both the Company and every officer in default would be liable to a fine and, for continued contravention, a daily default fine.
A proper and improper purpose
The ICSA publication contains examples of what it considers to be a proper or improper purpose in respect of requests to inspect, or require a copy of, a register of members. The publication clearly states that the lists are not intended to be exhaustive and a company’s response to a request will depend on the particular circumstances of the case.
Examples of proper purposes identified by the ICSA include:
- a request related to takeover offers and private acquisitions, where the bidder or anyone acting on their behalf requests access to the target’s register, prior to the bid being announced;
- a shareholder, or his attorney under a power of attorney, checking personal details are accurately recorded on the register; and
- a request from a regulatory or statutory body (e.g. the FSA, HMRC or the Takeover Panel).
Examples of improper purposes identified by the ICSA include:
- any purpose that could be unlawful, such as obtaining personal info that might abuse someone’s rights under the Data Protection Act 1998;
- offers relating to securities; and
- requests to obtain information for commercial mailings.
The full list of examples can be found at http://www.icsasoftware.com/dl/060607Access-to-the-Register-of-Members.pdf
Recommended Best Practice
- If a company receives a request and at least one purpose is considered improper it is recommended that the company refuses the whole application and refers the matter to court.
- If a request is made to access the register to obtain information on a single or limited number of shareholders, access should be limited to this information and not to the entire register.
- If a request is received for research purposes, conditions should be imposed such as the shareholder cannot be contacted directly and no personal information should be disclosed to a third party.
If in doubt the company should refer the matter to court. The court will judge whether the application is for a proper purpose on the merits of each individual case.